Transcript ch04
Chapter 4 Developing an innovation strategy
© 2009 John Wiley & Sons Ltd.
www.managing-innovation.com
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CONTENTS
• • • Introduction Elements of corporate innovation strategy Conclusions 2
1. INTRODUCTION
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1.1 Innovation Strategy
Session 4 outline: • • • • •
Limitations of the rational planning approach to strategy Positions - national systems & competitors Paths - competencies & opportunities Processes - specialization versus integration Identifying & sustaining capabilities
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1.1 Innovation Strategy
• Four factors have a major influence on the ability of a firm to develop and create value through innovation:
The national system of innovation in which the firm is embedded, and which in part defines its range of choices in dealing with opportunities and threats.
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Its power and market position within the international value chain, which in part defines the innovation-based opportunities and threats that it faces.
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Innovation Strategy
• • Four factors have a major influence on the ability of a firm to develop and create value through innovation:
The capability and processes of the firm, including research, design, development, production, marketing and distribution.
Its ability to identify and exploit external sources of innovation, especially international networks.
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1.2 Choice of strategy
• • Choice of strategy (& luck) are more important than industry:
choice of industry 8.35% choice of strategy 46.4%
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parent company 0.8%
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unexplained (e.g. luck) 44.5% % total profitability explained. Source: Richard Rumelt “How much does industry matter?”, Strategic Management Journal, 1991, 12, 167-186
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1.3 Demands of Innovation Strategy
• • • Key demands of innovation strategy:
to develop firm-specific knowledge & capacity to exploit it to cope with environmental complexity & uncertainty to create organizational structures & processes to manage trade-offs between specialized & broad knowledge
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1.4 Strategic Management
Two distinct models of strategy: Rational/Planning
top-down outside-in
Resource/Capabilities based
bottom-up inside-out choice ahistorical static variation & selection cumulative dynamic/learning
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• • • •
1.4.1 Limitations of rational planning
Limitations of the rational planning:
Focus on with competitors, not customers Difficult to identify internal strengths & weaknesses e.g. oil firms & 'energy'; computer firms & 'information’ Strategic objectives do not match internal capabilities The environment is often complex & uncertain e.g. multi-media industry
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Strategic Management
Rational planning approach ignores constraints: • • • •
Size & resources of the firm Existing product & technological base Technological opportunities for innovation Market opportunities for innovation
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1.5 Competitor Analysis
Example: Five 'forces' analysis of competitive environment: • rivalry amongst existing competitors • threat of new entrants • threat of substitute products & services • power of suppliers • power of customers © 2009 John Wiley & Sons Ltd.
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Competitor Analysis
• • • • But innovation affects all five forces:
rivalry - basis of competition, industry boundaries new entrants - raise or lower entry barriers substitutes- relative price/performance, new products customers & suppliers - switching costs, relative power, vertical integration
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1.6 Blue Ocean strategy
• • • • Concept of Blue Ocean strategies, compared to traditional strategic thinking, or Red Ocean strategies:
Create uncontested market space, rather than compete in existing market space Make the competition irrelevant, rather than beat competitors Create &capture new demand, rather than fight for existing markets and customers Break the traditional value/cost trade-off: Align the whole system of a company's activities in pursuit of both differentiation and low cost
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2. ELEMENTS OF CORPORATE INNOVATION STRATEGY
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COMPETITIVE AND NATIONAL POSITIONS TECHNOLOGICAL PATHS ELEMENTS OF CORPORATE INNOVATION STRATEGY ORGANIZATIONAL AND MANAGERIAL PROCESSES 16
Key factors in innovation strategy: •
position of the firm - technologies, processes & products compared to competitors
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paths open to the firm, given its competencies & emerging opportunities
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processes to integrate & exploit competencies within & between firms
Source: Teece & Pisano © 2009 John Wiley & Sons Ltd.
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2.1 Positions - national factors
National factors influencing competencies: • • • •
input prices natural resources local buyers tastes public & private investments
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2.1.1 Positions – Emerging Economies
• • • • Firms in emerging economies may pursue different routes to upgrading through innovation:
Process upgrading – incremental process improvements to adapt to local inputs, reduce costs or to improve quality.
Product upgrading – through adaptation, differentiation, design and product development.
Capability upgrading – improving the range of functions undertaken, or changing the mix of functions, for example, production versus development or marketing.
Inter-sectoral upgrading - moving to different sectors, for example, to those with higher value-added.
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2.1.2 Positions - competition
• • • • Assessing competencies of competitors:
How do they compare in terms of size & composition?
How efficiently are they exploited?
How effectively do we learn from their knowledge & experience?
How do we differentiate, develop & maintain our innovation advantages?
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2.2 Paths - time horizons
• • • Level, time & focus of innovation strategy:
Business unit - 2-3 years - improving cost & quality, new product & service development Group/division - 5 years - positioning & exploiting synergies across business units Corporate - 10 years - environmental scanning & competence-building
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2.2.1 Paths & Processes - capabilities & innovation
Products & services Processes Capabilities Competencies Resources/assets 22 © 2009 John Wiley & Sons Ltd.
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2.2.2 Paths - capabilities & innovation
Innovation & strategic positioning: • • • • • •
pioneering technology, processes, products accumulated tacit knowledge complexity complementary assets standards patents
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2.2.3 Paths - capabilities & innovation
Characteristics of competencies: •
firm-specific
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significant benefit or value to customers
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take time to develop
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sustainable as difficult to imitate or acquire
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unique configurations of resources
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strong tacit content & socially complex
Source: Hall (2000) © 2009 John Wiley & Sons Ltd.
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2.3 Processes - Knowledge
Key organizational issue is how to balance conflicting requirements: • •
to identify & develop specialized knowledge within technologies & markets to exploit this knowledge by integrating across technologies & markets
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2.3.1 Processes - Innovation
• • • • Process of strategy formation:
given uncertainty, explore implication of a range of possible futures encourage the use of multiple sources of information, debate & scepticism ensure broad participation & informal channels of communication plan to change strategy in the light of new & unexpected evidence
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2.3.2 Processes - Resource Allocation
• • • • • Resource allocation under uncertainty:
encourage experimentation, risk-taking & incrementalism apply different criteria for different types of project use simple, transparent criteria make rules for termination explicit identify & plan for uncertainties
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2.3.3 Innovation Process
• • Generic phases of the innovation process:
Searching & scanning the internal & external environments Filtering & selecting potential opportunities
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acquiring the technical, financial & market
resources
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implementing development & commercialisation
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reviewing & learning from experience
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2.3.4 Innovation Process
• • • • • Factors affecting the precise process:
Sector - competitors, structure & constraints Markets - opportunities & rate of change Technology - maturity & costs Resources - firm & networks Location - regulation, policy & systems of innovation
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3. CONCLUSIONS
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3.1 Decision-making under Uncertainty
So, Innovation: Response or strategy?
• “. . . chance favours only the prepared mind”, L. Pasteur, 1854 • “...the more I practice, the luckier I get…”, Gary Player (champion golfer) © 2009 John Wiley & Sons Ltd.
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3.2 Being the first
• • • • • • • Advantages of being first to market:
reputation as a pioneer capture market share early learning curve benefits definition of standards establish entry barriers eg patents dominate supply & distribution chains earn ‘monopoly’ profits
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• • • • • Disadvantages of being first to market:
pioneering costs, educating buyers, regulatory approval demand uncertainty changing buyer needs low-cost imitation followers ‘leapfrog’ technology
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3.3 Conclusions: Innovation Strategy
• • • Conclusions and implications from observation and research:
The elements national systems of innovation interact to influence the degree and direction of innovation in a country.
The uneven global distribution of innovation demands global search strategies for the development & commercialization of innovation.
The position of a firm in an international value chain will constrain the opportunities for innovation and entrepreneurship.
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Conclusions: Innovation Strategy
• • Conclusions and implications from observation and research:
National context influences, but does not determine the rate and direction of innovation at the firm level. Dynamic capabilities and firm-level processes contribute to the development and growth of firms.
Sources: J. Bessant & J. Tidd (2007) Innovation and Entrepreneurship (Wiley); J. Tidd (2006) From Knowledge Management to Strategic Competence (Imperial College Press, 2 nd edition); J. Tidd, & J. Bessant (2009) Managing Innovation: Integrating technological, market & organizational change (Wiley, 4th edition); S. Isaksen & J. Tidd (2006) Meeting the Innovation Challenge: Leadership for Transformation and Growth (Wiley). © 2009 John Wiley & Sons Ltd.
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